- 4 - their benefits exceeds $44,000 by at least $32,259, they must include in income 85 percent of the benefits. See sec. 86(a), (c). Thus, respondent is correct in his determination that petitioners must include in income 85 percent of the Social Security disability benefits, or $9,619. Petitioners’ primary argument is that the payments should not be included in income because they are disability payments. As noted above, however, Social Security disability benefits are treated in the same manner as other Social Security benefits and must be included in income to the extent required under section 86. See Thomas v. Commissioner, supra. A portion of the benefits was paid directly to Ms. Dela Cruz’s lawyer. As a general rule, income is taxed to the person earning it even if the right to receive the income is contractually assigned to another person prior to its being earned. Lucas v. Earl, 281 U.S. 111 (1930); Kenseth v. Commissioner, 114 T.C. 399 (2000), affd. 259 F.3d 881 (7th Cir. 2001); Banks v. Commissioner, T.C. Memo. 2001-48; see also S. Rept. 98-23, 26 (1983), 1983-2 C.B. 328 (stating that the total amount of Social Security benefits received by a taxpayer is not to be reduced by attorney’s fees). Under this principle, the Social Security benefits paid to Ms. Dela Cruz are includable in income despite the fact that her lawyer was paid directly by the Social Security Administration.Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011